Last week, I wrote that the real bond king, Yves Lamoureux, was no longer bullish Treasuries, and now he is out with a new blog article saying he is not a fan of gold presently and likes the mighty US dollar as the ultimate hedge.
Is Mr. Lamoureux trying to toy with my intellect? To clarify, his argument--as I understand it--is that the correlation between gold and stocks and commodities is too strong at present for gold to work as a hedge against credit risk. Bonds will not work because the 30-year will have to be "amplified or increased in quantity" and they too will have a positive correlation to financial assets. So what we are left with as the great diversifier is the US dollar and not gold or bonds.
For me, there is a step missing in his argument, and that is what makes the US dollar rise in value. Will the US dollar rise because, as we saw in 2008, there was forced buying of US dollars as leverage unwound and money had to return home, so to speak? Does he see a similar meltdown happening again and perhaps starting right about now? Why else would the US dollar rise in value?
Concerning a fall in gold, Alf Fields also said recently that there could be one more correction in gold before it launches, "the possibility (40% probability?) that gold will have another dip to test the target areas [a 21% - 26% decline from the top] mentioned. The higher the price goes above $1767, the greater the probability that the low was in at $1531."
Possibly Mr. Lamoureux sees what Mr. Fields sees using a different methodology.
I had to look back at some charts for 2008 to see what I know was going on with the US dollar and bonds. It goes well with what Mssrs. Lamoureux and Fields say. Below you can see the performance of the US dollar and SPDR Gold Trust (NYSE: GLD) during the crisis of 2008.
I remember July and October very well, believe me, and I wonder if that is something akin to what Mr. Lamoureux expects to see in the near future.
Still, bonds, or iShares Barclays 20+ Yr Treas.Bond (NYSE: TLT), performed extremely well in late 2008 but dropped off a cliff before markets bottomed in early 2009. I am wondering if we could see a delayed spike in TLT once again, and I'm talking another monster of a spike. I suppose Mr. Lamoureux would say, "No, you won't see it this time." We will see.
I'm mostly in cash at the moment and not because of Mr. Lamoureux or my belief in paper currencies . . . except for my ridiculous Agnico-Eagle Mines (NYSE: AEM) buy and a dabble here and there . . . simply in cash because I'm not sure when the runaway train in equities and gold will depart. That train is going to leave the solar system!
And yes, AEM sucks.